Guarantee dispute impedes APTTA

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The establishment of the Afghanistan Pakistan Transit Trade Agreement (APTTA) has been further delayed as Afghanistan has sought a reduction in financial guarantees on its trucks on which Pakistan is adamant in not showing any flexibility.
An official source said that after agreement on almost all issues, Kabul had sent a new demand to reduce financial guarantees equivalent to customs duties on the import of trucks in Pakistan of up to five percent as applicable in Afghanistan.

Under the APTTA, Afghanistan had agreed to provide bank guarantees equivalent to customs duties applicable on the import of trucks in Pakistan while separate insurance guarantees would be provided for the imported transit goods.
Kabul is of the opinion that massive banking guarantees would hold up huge sums of money of Afghan importers causing significant cash flow problems.

However, the Ministry of Finance had refused to accept the stance and has apparently determined that the bank guarantee equivalent to Pakistani custom duties must be given otherwise Afghan trucks will start vanishing in the country, the source said.

Elaborating on the notification dispute between the Ministry of Commerce and Federal Board of Revenue (FBR), he said that the ministry had informed the FBR that the agreement stands ratified and they should notify the customs rules as Ministry of Communications had already notified the trade routes.

FBR had earlier refused to issue the customs rules for APTTA until they received a notification from the Ministry of Commerce ratifying the accord. It is pertinent to note that the Prime Minister Syed Yusuf Raza Gilani and Afghan President Hamid Karzai had announced the commencement of APTTA from June 12 on Saturday.

The treaty will give a boost to the Afghan economy which was primarily by the United States. Currently Afghanistan imports one third of its total imports through Pakistan, while the remaining two-third imports come through Iran and Tajikistan.

The trade agreement was signed by the two neighbouring countries under US pressure in October 2010 and was to be implemented from January 1, 2011. Its implementation got delayed for more than six months due to the differences over financial guarantees between the two countries. Kabul wanted Islamabad to accept financial guarantees of its banks but Pakistan stressed cashable international bank guarantees on the import of Afghan transit goods.

The middle ground was sought with both the countries agreeing to accept insurance guarantees of AA rated Pakistani insurance companies. The notification of customs rules would allow movement of Afghani trucks inside Pakistani territory up to all its ports for taking export goods and for lifting imported goods.

Afghans traders could even send their trucks to Wagha on the border between Pakistan and India for onwards exports but their trucks cannot carry any Indian goods on their journey passing thorough Pakistan. Pakistani businessmen and traders have expressed serious reservations of the implications of APTTA which they believe could open the flood gates of smuggled imported goods and knock out the local manufacturing base. However, the government claims that it had introduced effective controls to check the menace of smuggling posed by the new treaty.

The measures put in place include scanning of the transit goods containers at import and re-scanning at the border exit points; if any discrepancy is found, the containers will be opened for physical inspection. Afghan traders would be expected to provide financial guarantees for their trucks and imported goods. In case of any pilferage, the guarantee would be cashed. The containers would be sealed with tamper proof seal and would be traced with tracking devices to check any abuse of the terms of the agreement.

In return for granting access to Afghanistan to India, Islamabad has gained transit access from Kabul for land locked Central Asian Republics (CARs), which are keen to use Pakistani ports for enhancing international trade. Pakistan will get access through 17 trade routes from Afghanistan for exports destined for Central Asia. This is a major concession garnered by Pakistan under APTTA which not part of the 1965 agreement.

Pakistan is looking to enhance export of its textiles, agricultural products, leather, surgical and sports goods to Central Asia. At present Pakistan’s trade with the land locked five Central Asian Republics is merely $20 million out of their estimated total annual imports of $20 billion.